Buyers in Selloff by 1st Bank System Pleased

MINNEAPOLIS - The week after First Bank System Inc. agreed to sell 63 of its small-town branches, participants in what is believed to be the first large-scale consortium-based purchase of private branches say they are pleased with the results.

The branches, with total deposits of $961.5 million, were among the 211 outlets that First Bank obtained as part of its recent acquisition of Metropolitan Financial Corp. They were sold to 28 community banks in eight Midwestern states. In a statement, the $34 billion-asset holding company said it sold the branches "after carefully evaluating all Metropolitan locations in terms of their potential to increase their individual market shares and operate within FBS profitability standards." The branches sold include 17 in Minnesota, 11 in North Dakota, 10 in Iowa, nine in Nebraska, seven in Kansas, five in Wisconsin, and two each in Arizona and South Dakota. The sales agreements were reached through several consortiums, which pooled the resources and buying power of dozens of small banks together. Although consortium-based purchases of failed thrifts from the Resolution Trust Corp. have occurred in the past, Eric Hovde, executive vice president of Hovde Financial said this is the first such private purchase. Mr. Hovde, whose Washington, D.C.-based company organized the purchase of 27 branches in Arizona, Iowa, Nebraska, and Wisconsin, called it a good deal for all sides. The small banks were able to make acquisitions that they probably would not have made on their own, while First Bank gained the ease and cost-savings of not having to hammer out 63 separate purchase agreements.

"It is particularly good way for community banks to get into the acquisition market," said Lynn Evans, executive vice president of American Bank in St. Paul, which headed a consortium of 11 purchasing banks in Minnesota. John Crinklaw, president of $65 million-asset Windsor Bancshares in Minneapolis, agreed. His company bought two Minnesota branches - in Chisholm and Sleepy Eye - and was pleased with the process.

"It was much easier than just sitting down and negotiating for a branch with a small bank," he said. Consortium heads in each state screened bidding banks on financial and regulatory grounds, before putting together one massive purchase and assumption agreement per state.

Although officials on both sides refused to reveal purchase prices, Mr. Hovde said that the small banks got a good deal. "Clearly, (First Bank) did not go in and extract the highest dollar ... The cost of administering all those transactions individually would have been extremely high." The sales followed First Bank's acquisition of Metropolitan Financial in an $800 million stock swap completed last month. First Bank already has announced plans to close 22 offices in Minnesota, where Metropolitan branches overlap with existing First Bank operations.

Metropolitan had assets of $7.1 billion and $5.5 billion of deposits at the time of the acquisition. Observers said the branches that were sold, with an average deposit base of just over $15 million, were too small for efficiency-driven First Bank, but made sense for the small buyers. Many of the branches were purchased by community banks with branches in the same town, giving them the chance to consolidate while boosting their customer and deposit bases.

"It gives us some additional size with which to serve our customers," said Terrence Gere, president of Minnwest Bank in Ortonville, Minn. Minnwest has $31 million of deposits; the former Metropolitan branch Minnwest acquired has $11.3 million. American Bank's Mr. Evans said he expects to see more consortium purchases in the future, as big regional banks gobble up large rivals, and spit out some of the pieces.

"As the consolidation process goes on, there will be either regulatory or financial reasons for bigger banks to sell off properties," Mr. Evans said. "So I think you're going to see a lot more of this."

Mr. Engen is a freelance writer based in Minneapolis.

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